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Nelson Obus‘ Wynnefield Capital was founded in 1992 by Obus and Joshua Landes, who continue to act as the fund’s President and Executive Vice President/Treasurer/Secretary respectively. The small, employee-owned hedge fund caters to pooled investment vehicles and profit sharing plans.

The fund’s regulatory assets under management stood at $372 million as of July 6, with more than 75% of that amount being courtesy of pooled investment vehicles. Through the end of 2015 its small-cap value fund had delivered an annualized rate of return of 13.5% net of fees.

The fund primarily seeks out U.S-based small-cap stocks to invest in, stocks which it believes has or will have company- or industry-specific catalysts to drive growth. Among the potential factors and catalysts that the fund looks for in an investment are changes in government regulations which could have a positive impact on a company or industry, companies which have minimal debt or debt that is rapidly being paid down, and companies which are shareholder-friendly, especially those where the management team’s compensation is tied to shareholder value.

Wynnefield Capital is also an active manager, attempting to work together with the management teams of the companies in which it invests in an effort to help build on those catalysts and bring them to greater market attention, though the fund does not seek board representation in most cases. The fund has a long-term investment horizon for its core positions, which it holds for six-to-eight years on average.

We’ll get to some of those investments shortly, but let’s first take a closer look at the fund’s ‘Speak Out Against Regulatory Abuse’ campaign, which interested parties can inquire about or join by contacting the fund at SpeakOut@wynnecap.com. Nelson Obus spent 12 years and millions of dollars battling insider trading charges which he was ultimately found innocent of by a jury in 2014.

The nightmare began in 2002, when he was subpoenaed by the SEC on allegations that he had bought shares of SunSource with the knowledge that the company would soon be sold. The company was indeed sold a few weeks after his purchase, leading to shares doubling in value and the fund reaping a profit of about $1.2 million on the trade.

The SEC alleged that Obus called SunSource’s CEO to confirm that the company would be sold before buying the shares. Obus claims the discussion was about something else entirely, a financing arrangement which he believed would hurt shareholders. In 2006, a lawsuit was brought against the fund by the SEC. Obus fought the lawsuit and won, with it being struck down by a judge in 2010 on the grounds that there was insufficient evidence to support it. However, the SEC appealed, and the nightmare continued for another four years.

Obus’ campaign seeks to raise awareness of the harm that the SEC’s overreaching efforts to sniff out cases of insider trading are having on small businesses and the economy at large. Many smaller firms that come under attack by the SEC simply don’t have the means or desire to fight them like Obus did, which can force them to settle and in some cases close through loss of client trust. Obus thanked his own clients for their loyalty after his case was finally concluded, only 7% of whom withdrew their money following the insider trading accusations.

On the following page we’ll take a look at a handful of Wynnefield’s core positions as of June 30. While the fund had 43 long positions at that time, its portfolio was highly concentrated, with its top-10 positions accounting for 67% of its 13F portfolio’s value.

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